System And Method For Business To Investor Exchange For Raising Capital And For Creating A Secondary Market For Private Equity

ABSTRACT

The present invention creates a secondary market in private equities by auctioning venture-backed private equities over the Internet to qualified investors. Typical sources for the private equities will be interests in limited partnerships and pre-IPO or pulled-IPO securities. The operator of the system may sometimes take a position in certain private equities so as to have “inventory” to later sell on the system. In a typical buyer-driven transaction using the present invention, a qualified buyer puts out a bid for private assets in a particular area. Sellers who subscribe to the system receive notice of the bid and can then respond. In a typical seller-driven transaction using the present invention, a seller puts out a notice on the system of equities for sale. Buyers who subscribe to the system receive notice and can respond. Either the buyer or the seller may be charged by the system, depending on the transaction.

RELATIONSHIP TO OTHER APPLICATIONS

The present application is a continuation of U.S. patent applicationSer. No. 13/083,792, filed Apr. 11, 2011, entitled “System And MethodFor Business To Investor Exchange For Raising Capital And For Creating ASecondary Market For Private Equity,” which is a continuation of U.S.patent application Ser. No. 09/783,499, filed Feb. 14, 2001, now U.S.Pat. No. 7,925,567, and entitled “System And Method For Business ToInvestor Exchange For Raising Capital And For Creating A SecondaryMarket For Private Equity,” which claims priority under 35 U.S.C.§119(e) from U.S. Provisional Application Ser. No. 60/182,317, filedFeb. 14, 2000, the contents of each of which are fully incorporatedherein by reference.

FIELD OF THE INVENTION

This invention relates generally to securing investment capital andestablishing a secondary market for equities. More particularly thepresent invention is a system and method for creation of a secondarymarket for sale of private equity, both limited partnership interestsand individual companies, and sale of restricted stock of publicsecurities. The present invention also creates calls and puts on privateequity.

BACKGROUND OF THE INVENTION

Investment capital is the life blood of new ventures. Absent appropriatefinancing, a company with very good ideas can cease to exist. Whenever acompany desires to obtain funding through public or private placementsit is necessary for a company to create a business plan, and get thebusiness plan into the hands of appropriate investors of all types bothprivate and institutional so that a judgment can be made as to whetheran investment is worthwhile.

Private equity is the fastest growing asset class. However, it is anasset class with the least amount of liquidity. Once perceived asextremely risky, investing in private companies is becoming morewidespread as individuals, corporations and traditional conservativeinstitutional investors (mutual funds, insurance companies, etc.) arenow investing directly in private companies to pick up incrementalreturn. Additionally, venture capital funds continue to invest at recordpaces. However, until the full sale or a secondary public offeringoccurs, there is no marketplace for an investor to sell securities thathave been obtained during early round start up of the business. In 1999,over $48 billion poured into private companies in the U.S. alone, up151% from 1998. The $48 billion represents a nine-fold increase in thelast five years. Although the public markets are currently volatile,investments in private companies have continued unabated, as theseinvestors are focused on a 40-year average annual return for venturecapital investments of 45%, and the fact that “the performance ofventure capital has almost no correlation with the stock market.”Despite the fact that all this money keeps pouring in, there is still nomarketplace to buy and sell these securities.

One way to sell securities is to convince and investor of the worthwhilenature of the investment that is to be sold. This is typically done bymeeting with and providing to investors a wide variety of materials,including business plans, presentations, and other supporting documents.The difficulty with having such business plans and documents reviewed isthat investors are frequently inundated with business plans and hence donot have a sense of urgency in reviewing the business plans and makingtheir investments decisions. Further, many such submissions are made toinvestors in a “shotgun” fashion without regard to the actual interestsof the investors.

What would be truly be useful is a system and method for providing asecondary market for securities that is accessible by accreditedinvestors over a network. Such a systems would provide targetedmarketing of securities to investors that match the interests of theinvestor with the type of security available for sale. Such a systemwould allow, in an automated way, a review of business plans andancillary documents in an efficient and effective manner, such that aninvestment decision can be rendered by institutional and privateinvestors. Such a system would utilize, preferably, but withoutlimitation, the Internet to create the marketplace, thereby establishinga secondary market for the buying and selling of private equities, bothof individual companies and of limited partnership interests.

SUMMARY OF THE INVENTION

It is therefore an object of the present invention to establish asecondary market for the buying and selling of traditionally illiquidsecurities over a network.

It is yet another object of the present invention to create a serverbased secondary market for private equities when individual investorswish to cash in on their initial investment.

It is a further object of the present invention to create a secondarymarket to permit the buying and selling of private equities andinterests in limited partnerships.

It is yet another object of the present invention to create a secondarymarket for the resale of restricted stock of public securities.

It is another object of the present invention to create calls and putson private equities, both on individual companies and on limitedpartnership interests.

It is still another object of the present invention to register buyersof securities and their specific interests so that securities offeringscan be targeted to those investors having the appropriate interest.

It is a further object of the present invention to qualify bothbusinesses and investors to view business plans of entrepreneurs in atimely fashion.

It is a further object of the present invention to prescreen thosesecurities that are available to investors to permit only the highestquality securities to be available for investment.

It is yet another object of the present invention to assistentrepreneurs in developing an appropriate business plans for review byinvestors.

It is a further object of the present invention to create a video orother audio visual interactive presentation method for an entrepreneursto present the business opportunity to investors.

It is yet another object of the present invention to assistentrepreneurs in creating the business plans and in facilitating thepresentation of those business plans to institutional and privateinvestors.

It is yet another object of the present invention to present a briefvideo or other audio-visual presentation by the actual entrepreneur overa network to those investors who are interested in potentially investingin the business opportunity.

It is a further objective of the present invention to create a serversystem on the Internet that “pushes” audio-visual presentations ofbusiness opportunities to qualified investors.

These and other objectives of the present will become apparent to thoseskilled in the art by a review of the specification that follows.

The present invention is a system and method for creating a secondarymarket for otherwise illiquid securities over a network that ispreferably, but without limitation, the Internet. Using the presentinvention, a vehicle is created that provides liquidity for thisilliquid market and creates an alternative exit strategy for Venturecapitalists (VCs), investors, incubators, angels round financiers,pension funds, corporations, and founders. Founders and officers areable to liquidate a non-material portion of their equity, enablingdiversification, providing liquidity, and capitalizing on the progressof the company.

One aspect of the present invention is that all sellers of securitieswill have those securities prescreened prior to them being available formarketing over the system of the present invention. For example, it isnot the intention of the present invention to sell just any securitythat a seller desires. Rather, only those securities that are venturebacked and have an established advisory board assisting the corporationare permitted to be offered for sale using the system and method of thepresent invention. This litmus test is not the only means of assuringquality securities. Other verification and vetting procedures known inthe industry can also be used to assure that only quality securities areavailable.

Qualified investors register with the system of the present invention.As part of the qualification, financial information is obtained thatpermits a judgment that the investor is indeed a qualified one. Alongwith such qualification information, the investor also creates aninvestment profile that notes, if desired, the types of securities inwhich the investor is most interested. This is kept in an accreditedinvestor file on the server of the present invention. When appropriatesecurities are made available for sale, the investor is notified if theinvestment fits the investor profile.

As noted above, securities are first qualified as being of appropriatequality using criteria such as, and without limitation, VC backedinvestments. Once the security is qualified and prescreened, it can thenbe sent together with a synopsis page and a brief video to those whomight be interested in purchasing the security. The present inventionalso performs due diligence on buyers so that they are noted asqualified investors.

Once a particular buyer is interested in a security, the presentinvention assists and facilitates in the due diligence necessary forbuyers to perform before actually purchasing the security in question.The present invention can link buyers with sellers in conference callsand assist in scheduling conferences between buyers and sellers tofacilitate the sale.

In addition to the various videos and business plans, which areanticipated to be distributed by the present invention, other businessagreements are also stored in the storage associated with the systemsserver of the present invention. For example share holders agreements,business plans, financial information, capitalization tables, corporatecharters, are all documents that will be readily accessible to qualifiedinvestors once they have been qualified. In 0 short, the system will notallow access of simply anyone to this information but on to qualifiedbuyers. Further, the information that will be available will be onlythat information which has been prescreened and meets certain qualitycharacteristics.

Thus the present invention is not a listing service but rather is anexchange marketplace, operating over a network, wherein certainsafeguards have been applied and wherein buyers and sellers are placedtogether so that they can make an independent judgment regarding thepurchases and sale of a particular security.

Major sources of securities to be sold may be derived from those IPO'swhich were projected to be accomplished but which were pulled forvarious reasons. Typically such potential IPO's represent a desire by acompany to obtain investment capital and therefore represent anopportunity for securities in a secondary market to be sold to developthat capital in the event that the IPO does not take place.

In summary, the present invention is a system and method for tradingprivate equity in a secondary market over a network. Thus a retrocapitalist, a founder, or any investor will be able to sell all or partof their equity via the network. Only qualified individual buyers willbe permitted to participate in this private equity transaction.

In certain instances the organization administering this private equitymarket will be able to take positions by purchasing private equity. Thiswill result in the entity having an inventory of securities in thevarious companies who desire to sell private equity. The private equitycan then be offered to other individuals who may be interested inobtaining that private equity from time to time.

Profiles for qualified institutional buyers are developed as part of thepresent invention and, where the profile so indicates, the system of thepresent invention introduces qualified 0 institutional buyers to thoseselling private equity that matches the profile of interest of thequalified institutional buyers.

By dealing with venture-backed companies only, there is more of anopportunity that due diligence has been performed on the companyespecially those companies that have later stage venture-backed capital.

Using the system of the present invention, buyers may drive a particulartransaction by putting out a bid or notice that they are interested in aparticular type of private equity asset. That information request canproceed to the server of the present invention with a bid being sent toprivate companies who have the type of asset desired by the buyer.

The business model of the present invention permits the establishment ofa first-of-its-kind secondary market for traditionally illiquidsecurities over the Internet. It also allows the entity that runs thesystem of the present invention to charge sellers when securities aresold. However this is not meant as a limitation. If a buyer is drivingthe transaction, the buyer may be charged a transaction fee as a resultof the system of the present invention introducing the buyer to sellersof securities of interest to the buyer.

The types of securities to be sold using the system of the presentinvention are any secondary interests in, for example, limitedpartnership interests, private direct companies, and portfolios ofdirect private companies. The system will enable calls, puts, and otherderivative structures on limited partnership interests, private directcompanies, and portfolios of private direct companies.

In yet other operations of the present invention, affiliations withlending institutions will allow loans against private equities to takeplace.

BRIEF DESCRIPTION OF THE FIGURES

FIG. 1 is an overview of the conceptual architecture of the business toinvestor network.

FIG. 2 illustrates one architecture of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

As noted above, the present invention is a system and method forcreating a secondary market for otherwise illiquid securities over anetwork that is preferably, but without limitation, the Internet. Thesystem is server and network based, as more fully set forth below.

In a basic embodiment, the present invention auctions venture-backedprivate equities over the Internet to qualified investors. Typicalsources for the private equities are pre-IPO securities and securitiesfrom pulled IPO's. The operator of the system may sometimes take aposition in certain private equities (i.e., a “put”) so as to have“inventory” to later sell on the system.

In a typical buyer-driven transaction using the present invention, aqualified buyer puts out a bid for private assets in a particular area.Sellers who subscribe to the system receive notice of the bid and canthen respond.

In a typical seller-driven transaction using the present invention, aseller puts out a notice on the system of equities for sale. Buyers whosubscribe to the system receive notice and can respond.

Either the buyer, the seller, or both may be charged by the system,depending on the transaction.

Referring first to FIG. 1, the overall conceptual architecture of thebusiness to investor network is illustrated. Businesses 10, 12, 14requiring investment funding create a brief video, and a business plan(preferably no more than five minutes) which will be used to present theofficers of the company and the business investment opportunity toinvestors. These videos 16, 18, and 20 are prepared and sent via network22 that is preferably, but without limitation, the Internet to thebusiness investor server 28. The server 28 then stores both the videofor each individual company 16, 18, and 20 together with the associatedbusiness plan 32, 36, and 40 for the respective company. Theorganization running the server 28 of the present invention alsoqualifies both individual investors 24 and institutional investors 26such as pension funds, insurance companies, and the like. Once theseindividual and organizational investors are qualified, they receive bothaccess to the data base of the server 28 and are registered investorswith the system.

Part of the registration process is to provide the point of contact andthe associated electronic mail address to which information can be sent.

Upon receipt of a business opportunity and request for investment funds,the server 28 “pushes,” via e-mail, the video presentation 16, 18, and20 to the individual investors 24 and the institutional investors 26over the Internet 22. The investors can then view the five minute videopresentation and, if interested, can review an associated business plan32, 36, and 40 which is attached to the e-mail that is sent to theinvestors. Alternatively, the investors can access the server 28 of thepresent invention and directly access the business plans that are storedon the server.

It should be noted that the use of the Internet 22 is the preferredmedium for transmission of the investment opportunities. However this isnot meant as a limitation. Other intranets, and wireless networks wouldalso satisfy for the transmission of the associated information.

With the bandwidth available to those on the Internet increasingdramatically in recent times, the transmission of video information overthe Internet is today a reality. Thus, it is a simple matter to transmita five minute presentation by the Chief Executive Officer of aparticular company from the server 28 of the present invention to theindividual and institutional investors who have interest in receivingsuch presentations.

Referring to FIG. 2, the system architecture of the present invention isillustrated. The system operates with a series of servers, generallyrepresented as a server functionality which gives rise to the variousfunctions of the present invention. Users 300, who are accredited andinvestors access the system over the Internet 304. It should also benoted, however, that personal computers 300 are not the only way toaccess the present invention. For example, personal digital assistantshaving wireless capability 302 can also be connected to the network, ascan cellular telephones having the capability to interact over theInternet. Such cellular telephones 303 connect to the network typicallyover the cellular network and thereafter can access the system over theInternet 304. When accessing the system of the present invention, aninitial firewall 310 is in place to add security to the functionality ofthe present invention. Web server 306 provides the web service to thevarious users over the Internet 304. When a user desires to eitherregister or research information relating to trades, the user accessesthe system via the web server 306 and provides appropriateidentification. Web server 306 then accesses an authorization server 308via an internal firewall 312. These firewalls 310, 312 provideadditional security to the overall system only allowing accreditedinvestors or accredited companies to place securities on the system orplace trades over the system.

Once authorization server 308 verifies that the user 300 is authorizedto access the system, the user can obtain information from the serverfunctionality over an intranet 314 to which the various serverfunctionalities are connected.

For example, content server 316 stores various content associated withqualified investments. Business clients 328, audio information 330,video information 332, and statistical information 334 are all stored instorage that is associated with content server 316. In addition, contentserver 316 has additional input 350 which comprises scanners, or othertype of input that allow other type of information from companies to bestored on the various databases associated with the content server.

Administration server 318 administers and stores information onaccredited investor storage 336. Also, those companies that havesecurities to be sold are stored in database 338. It should be notedthat this is information that relates to the investors and the companiesand not the specific content that is to be served to the accreditedinvestors. Thus, the database of profiles of the investors is stored inthe accredited investor database 336. This information comprises contactinformation and information relating to the interest level of theaccredited investor in particular types of investments.

Communications server 320 manages all of the communications associatedwith the present invention. It allows for e-mail between companies andaccredited investors and between the entity that runs the presentinvention and the accredited investor. E-mail information is stored ine-mail database 340, which is associated with communications server 320.In addition, communications server 320 stores push instructions 344,which, in association with e-mail stored in the e-mail database 340allows for certain information on the content server to be “pushed” tothe e-mail of accredited investors who have expressed particularinterest in certain types of investments.

Work flow server 322 manages the work flow associated with bringing newcompanies and securities for sale into the system of the presentinvention as well as to manage the overall work flow associated withregistering an accredited investor. Information concerning companies,corporate data and other related data are stored in database 346, whichis associated with workflow server 322.

Market analysis server 324 provides additional statistical informationand research information to investors who desire to research a market inassociation with the particular investment that they wish to make.Provision is also made in the present invention for additional servers326 to handle other types of workloads.

It should be noted that the system of the present invention is scalableby simply adding additional servers to the various functionalitytogether with load balancing servers so that the work load on any oneserver and functionality is even. This, in addition, optimizes theresponse to investors 300 who desire to access the system for investmentpurposes.

In addition to the access over the network, provision is made in thepresent invention for internal analysts 348 to access the system overintranet 314. To do so, such internal analysts 348 access the systemthrough firewall 312 and only after providing appropriate identificationto the system. In this way, internal security is maintained for thoseanalysts as well.

Another aspect of the business model of the present invention is thatthe presentation of these investment opportunities are for a limitedtime only. This has particular advantages.

At the present time it could take any where from three to six months inorder for a business plan to be reviewed by private investors. This isdue to the large volume of such business plans that are typicallyreceived by both individual and private investors. When a companysubmits such a business plan it does so in the hopes of garnering theinterest of such investors. However no time table is typically set forsuch a response. Therefore, the entrepreneurs are left with no knowledgeof when, if ever, funding will arrive. Alternatively the entrepreneurmight be forced to accept an offer from a single investor which may notbe the best offer for the company.

Using the system and method of the present invention, entrepreneurs canbe assured that their business plans will be sent to a number ofappropriate investors, some of whom may be initially unknown to theentrepreneur.

On the investor decision side, the investors are aware, when they signup for the service of the present invention, that there will be alimited period of time during which they have to respond. Thoseinvestors who do respond within an appropriate period of time set by theentity managing the server of the present invention will have theiroffers considered. In this fashion, some pressure is placed upon theinvestors to make timely offers. In addition, by having such pressureplaced upon the investment community, more serious offers will bereceived by the server of the present invention in a timely fashion, fordistribution to the entrepreneurs.

Secondary Market

An additional problem subsequently occurs in selling securities in whichan investor invests on a secondary market. This situation occurs when aninvestor wishes to capitalize on an initial investment prior to an IPOoccurring. Typically equities available on the secondary market are madeavailable to institutional investors. Individual investors are typicallynot informed of the availability of such equities on the secondarymarket, and if they are informed, it is typically too late.

Thus the present invention also comprises a file of equities that areoffered on the secondary market which are connected to the server of thepresent invention. When the individual investor or institutionalinvestor wishes to sell some securities on the secondary market, thosesecurities are made available through the server of the presentinvention. The server then “pushes” e-mail and associated informationrelating to the equities to be offered. Individual and institutionalinvestors have an opportunity then to respond to the offers of the saleof the equity on the secondary market. Again a time schedule is set foroffers. The highest bidder for the equity offered during the time periodbuys the equity.

Another aspect of the present invention is that a certain percent of theequities that are available on the secondary market will be specificallymade available to individual investors. In this fashion institutionalinvestors will not be the only ones who can benefit from the sale ofsuch equities the secondary market.

A further aspect of the present invention is that the securities thatare offered on the secondary market will be those securities that hadoriginally been reviewed and approved by the entity that runs the serverof the present invention. Thus the server will be offering the samesecurities on the secondary market as it helped place in privateplacement initially. Thus investors can have some additional assurancethat the products being sold are in fact those products deemed to beworthwhile in the first instance to be sold to investors initially.

The typical equipment needed for the present invention comprises anassembly of standard servers, with an exemplary embodiment illustratedas follows:

The Web Server comprises:

Dell 6450 w14 Intel 700 MHz Xeon Processors 36

GB Ultra 3 SCSI Hard disk

4 GB SDRAM

2 Intel Pro 1000 Gigabit Network Interface Cards

The Content Server:

Dell 6450 w14 Intel 700 MHz Xeon Processors

4-36 GB Ultra 3 SCSI Hard disks (usable capacity depends on RAIDconfiguration)

8 GB SDRAM

2 Intel Pro 1000 Gigabit Network Interface Cards

Additional external storage may be added (either SCSI or Fibre Channel)

All other servers:

Dell 2450 w/1 Intel 733 Mhz Pentium III

36 GB SCSI Hard Disk

1 GB SDRAM

1 Intel Pro 1000 Gigabit Network Interface Card

These servers are illustrative of the type of server that will findutility with the present invention. Other servers from, for example IBM,Sun Microsystems and Compaq will also be useful with the presentinvention, so long as they have the same or similar capabilities.

Similarly, there are no special requirements for the workstations thataccess the system either via the intranet 314 or over the Internet. PCor PC compatible workstations running Windows, Windows NT, Windows 2000,having a web browser such as Netscape or Microsoft Explorer, having anIntel, AMD or other processor with associated RAM and storage will allbe useful for the present invention.

Assistance in generating the brief video to be distributed to investorsis made by the entity that is administering the server of the presentinvention or some entity that is contracted for by the server manager.In this fashion a consistent high quality product can be generated forsubsequent distribution.

A system and method for the generation of investment interest betweenbusiness and investors has been illustrated together with a system andmethod for the sale of equities on the secondary market. By virtue ofthe novel use of a brief video clip, investors will be more inclined todeal with a particular firm than they would otherwise be based solelyupon seeing a written product. Thus the present invention enhances theperson-to-person relationship between an entrepreneur and an investorand encourages subsequent meetings between the parties.

It will be appreciated by those skilled in the art that otherembodiments of the present invention are possible without departing fromthe scope of the invention as disclosed.

1-32. (canceled)
 33. A method for creating a secondary market forprivate equity, the method comprising: prescreening securities based onprivate equity to ensure that the securities meet at least onepredetermined criteria, wherein the at least one predetermined criteriacomprises that the securities are securities selected from the groupconsisting of venture-backed securities, private-equity-backedsecurities, and limited partnership interests; registering in a computerdatabase the prescreened securities based on private equity; providing asystem configured to auction the registered prescreened securities overan electronic network; and restricting access to the system toauthorized users.
 34. The method of claim 33, wherein the electronicnetwork is the Internet.
 35. The method of claim 33, wherein restrictingaccess to the system to authorized users comprises only allowingaccredited investors or accredited companies to place securities orplace trades.
 36. The method of claim 35, wherein only allowingaccredited investors or accredited companies to place securities orplace trades comprises registering the accredited investors oraccredited companies with a system operator.
 37. A method for creating asecondary market for otherwise illiquid securities, the methodcomprising: prescreening the otherwise illiquid securities to ensurethat the otherwise illiquid securities meet at least one predeterminedquality characteristic; registering in a computer database theprescreened securities; providing a system configured to auction theregistered prescreened securities over an electronic network; andrestricting access to the system to authorized users.
 38. The method ofclaim 37, wherein the otherwise illiquid securities comprise securitiesselected from the group consisting of securities based on private equityand restricted public securities.
 39. The method of claim 38, whereinprescreening the otherwise illiquid securities to ensure that theotherwise illiquid securities meet at least one predetermined qualitycharacteristic comprises: prescreening the otherwise illiquid securitiesto ensure that the otherwise illiquid securities meet at least onepredetermined criteria, wherein the at least one predetermined criteriacomprises that the otherwise illiquid securities are securities selectedfrom the group consisting of venture-backed securities,private-equity-backed securities, and limited partnership interests. 40.The method of claim 37, wherein restricting access to the system toauthorized users comprises only allowing accredited investors oraccredited companies to place securities or place trades.
 41. The methodof claim 40, wherein only allowing accredited investors or accreditedcompanies to place securities or place trades comprises registering theaccredited investors or accredited companies with a system operator. 42.The method of claim 37, wherein the electronic network is the Internet.43. A method for creating a secondary market for restricted publicsecurities, the method comprising: prescreening restricted publicsecurities to ensure that the restricted public securities meet at leastone predetermined quality characteristic; registering in a computerdatabase the prescreened restricted public securities; providing asystem configured to auction the registered prescreened restrictedpublic securities over an electronic network; and restricting access tothe system to authorized users.
 44. The method of claim 43, whereinrestricting access to the system to authorized users comprises onlyallowing accredited investors or accredited companies to placesecurities or place trades.
 45. The method of claim 44, wherein onlyallowing accredited investors or accredited companies to placesecurities or place trades comprises registering the accreditedinvestors or accredited companies with a system operator.
 46. The methodof claim 43, wherein the electronic network is the Internet.